Do you measure the payback of TV advertising, sports sponsorship and the profitability of your warehouses by EBIT? No?

Why then do you measure retail stores with the same role (branding, community building, shipment handling) by its P&L alone?

As the Covid-19 fog over the future of offline retailing is lifting, more lifestyle brands come out of their investment freeze and put retail expansion back on the strategic agenda.

Adidas, one of the brands announcing a post-Covid reload of retail expansion (Photo: Adidas Dubai)

But retail roles and functions have evolved and with online playing a major role in all parts of our life, how do you want to control and measure retail operations in a decade where consumers switch channels, even when in store?

Time’s up for traditional Retail Management

In the 1990s, a brand store was just that, a store. Its only function was to sell the goods on display to local consumers, most of whom were not very well-travelled, let alone smart shoppers. Brand retail operation management was equally simple. A store had to generate profits to pay back investments, while achieving sales below the operating cost was punished with closure. And whenever a store manager argued that the P&L assessment wasn’t everything, their management skill was put under observation.

LEGO announced the opening of 100 more brand stores this year (Photo: Shanghai Flagship, Baycrast, WikiCommons)

But with the new millennium, lifestyle markets became globally competitive, consumers smart traveller and brand distribution happened in 10 different channels. Those were the gold rush years for brand expansion, with store networks growing to 1,000+ stores in 30 countries. Retail expansion came in very different shapes and sizes (high street stores, flagships, factory outlets, concession stores) and was no longer just measured by EBIT.

Brand retail performance reporting became sophisticated, payback evaluations replaced investment calculations, and 4-wall-contribution became the new store EBIT. Operational KPIs, originally developed in food retailing, swapped over to brand retail. New brand retail reports included store traffic, average ticket sizes and conversion rates, and were much more telling to those that could interpret them.

Retail cockpits needs less rather than more KPIs (Graphic: Brand Pilots)

But above all, brand retail operations grew up and were managed professionally. In their final stage of adolescence, brand distribution channels became profit centres that where competitors to wholesale and online. Before merged with online to DTC. But the big strategic question stays: Is managing brand distribution by EBIT really the right thing to do?

Nike & Apple set the pace for a different retail performance measurement

The early 2010s were a great time for analysis lovers like me. Annual brand reports showed retail sales and selling space, and it was easy to figure out space productivities, who was growing stronger and who was losing momentum. But smart brands also recognised that channel profitability couldn’t provide the full picture and potentially led to strategic mistakes.

It was the late 1990ies when my colleagues at Kurt Salmon Associates shared that NikeTowns were a new breed in brand retailing and consumer experience, not measured by profitability alone. Back then, this was revolutionary thinking in retail.

Nike’s new Paris flagship: highly entertaining, strong branding, and not purely measured in investment payback

It took Apple a little longer into retail, but they too took a wider approach. I wrote about Apple’s outstanding store productivities in 2012, but also that their retail operating profits were far lower than wholesale. And to make it look better, they declared the largest 19 global flagships as brand expenses and removed them from their retail reporting (as shared before).

In a way Apple’ and Nike’s approach were as a relief to to other brands trying to make flagships highly profitable. Even media hype and overnight queues for product launches were not enough to make retail as profitable as wholesale.

Camping at Apple Australia, before queueing became a Covid-19 side effect (Photo: Beau Giles, WikiCommons)

Apple’s thinking about retail management changed in 2012, when UK retail dinosaur John Browett was hired to address retail productivities, only to lose his job six months later. In those six months, John and Apple had realised that the conflicting goals of outstanding retail profitability and superior consumer experience were like fire and water – they don’t go together too well.

In the year that followed, Apple’s retail division reporting vanished from the annual reports and made room for a new approach to retail. Two years into Angela Ahrendts engagement, Apple ‘town squares’ launched.

“We’re creating a modern-day town square, where everyone is welcome in a space where the best of Apple comes together to connect with one another, discover a new passion, or take their skill to the next level. We think it will be a fun and enlightening experience for everyone who joins.”

Since then, Apple has not been very transparent about their retail productivities and we only catch a glimpse when a former Apple Genius shares that “they don’t focus on metrics. It’s all about the experience, establishing a relationship with the customer and ensuring they leave the store as a promoter and part of the Apple family.”

And rightly so: If consumers make their sales journey across all brand channels before they buy, how can we allocate a sales contribution to a single channel to determine a channel’s profitability?

Apple’s community hub in San Francisco (Photo: Brand Pilots)

New old approach to measuring retail operations in 2021

You may not hold the brand power of Apple or Nike, but one thing is alike: EBIT doesn’t measure consumer experience and brand impact. Your brand stores, whether flagship or regular commercial formats, have a strategic function that isn’t expressed in productivity alone. So maybe its time to widen the tools to manage retail.

And the latest since Kaplan’s Balanced Scorecards we have qualitative alternatives for setting goals and managing progress. Many have done so for example by setting new corporate goals on environment or diversity. But how far along is your retail reporting, stuck in the last century or set up for multichannel in 2020s? DTC executives knew it all along, traditional channel reporting is too black and white. With retail and online in one management hand, multichannel and interaction between the channels can be measured (as I inspired before). Lockdowns and performance upon re-opening emphasise that traditional retail cockpits can be pretty useless. If not now, when do you finally reframe your look at retail operations and manage retail in a sophisticated multichannel world.

Community stores and their role in the neighbourhood can be measured as much as the tourism branding impact of a high street flagship in Paris. A great consumer experience can be measured as much as traffic and conversion. As consumers become more and more sophisticated, retail management has to follow suit. Without a smarter way of setting goals and measuring success, your traditional retail reporting has you navigating a thick fog.

If this is like your brand & retail operation in Paris, do you really think you can manage them by looking at their EBIT? (Graphic: Brand Pilots)

How to organise Retail Operations in 2021

There is no ‘one way fits all’, so there is no way to share a ready-made solution from shelf. But after 30 years of reframing strategic perspectives on brand’s inhouse reporting and KPIs, I know that progress and strategic development are neither triggered by spreadsheets nor by dashboards. It’s the process, the process of analysing and developing new ways of goal settings and managing progress in the implementation.

In brand retail, this begins by looking at the roles of your different retail formats and what strategic goals and KPIs they translate to. Take factory outlets as the most obvious example. You don’t grow them to become more successful, their role is a different one. But your outlet channel wouldn’t become commercially successful if  it relies only on seasonal leftovers (as shared before). Therefore, it needs a sophisticated retail management, different goals and different retail operations.

Or take flagships. You’ve placed them at the most expensive top locations to advertise your brand. What is their advertising value in Tokyo vs. London? Or your commercial stores: when you took sales space to handle online returns, did you actually reduce the net selling space in your productivity reporting? Your store clerks pack and ship online orders instead giving their full attention to consumer traffic in front of the store – does your new sales per staff hour reporting 2021 reflect that? And do you know how well your stores actually do with follow-up sales to customers who return merchandise, what would be true cross channel selling?

Rapha’s bi-weekly ride-out with customers is community management at its best, but do really believe this can be measured in EBIT? (Photo: Leica)

Wherever we look, own retail distribution has become more complex and the KPI or dashboard approach loses more and more of its value. Mystery shopping scores, customer satisfaction scores, net promoter scores, Google maps review scores or Facebook likes per store ….. all hold valuable performance information. And it would be tempting to suggest, report them all or at least 5-7.

But the more you look at individual KPIs, the more you lose the perspective of the big picture. Besides picking the 5-7 most important ones won’t change the way people manage retail operations, not without a change process. Exactly here is where balanced scorecards make a difference. Because (unlike dashboards) their development doesn’t come from shelf, it is a process of reflecting performance, setting new goals and measure progress.

Manage retail operations with balanced scorecards

The controller in me would love to tell you that all investments need a payback and proof of return. Financials are still the simplest way of measuring. But achieving monetary returns is not telling on whether you grew the experiences and hearts of your customers. Retail, like online, remains a huge investment area, and an area to create outstanding consumer experience. That alone merits an assessment that goes beyond financial KPIs. Brand experience is multidimensional and so should your operations report be.

Kaplan’s original scorecard logic, not far from what 2021 retail operations need (Graphic: Brand Pilots)

Balanced scorecards can be the strongest way to determine where you are before, during and after a retail investment. Well thought through with strategic qualitative goals and financial measures. With growth-planning season 2022 just around the corner, now is a good time to rethink your retail measurement and bring your goals into Balanced Scorecards.

Measure the evolution of your processes, tools and structures to report retail management 2022 in its true success. Move beyond ‘channel thinking’ and engage your organisation in a new thinking– Truly Cross Channel, as you customers have done years ago.

About the author:

Guido’s career began in finance, where he learned the value of EBITs, but also that it doesn’t give you the full picture. He became a brand strategy analyst, growth advisor and dedicated scorecard developer. Reach out on LinkedIn if you would like to discuss with him about brand performance management. Or read more of Guido’s work here.